#AIS: MP Materials CEO James Litinsky on rare earths, supply chain, and energy independence

okay so uh i wanted to introduce somebody uh this is uh an incredible story of a turnaround of a business that impacts a lot of us in america if you care about climate change etc uh his name is jim lutinski and uh here's a guy who had all the success in the world running a hedge fund successfully a business called mollycorp goes into bankruptcy he basically puts his entire fund in it brings it out of bankruptcy manages to build one of the first mines that was completely cleared you heard what elon said about california in california that mines some of these rare earths and

critical metals that we need to make permanent magnets that we use in electric motors um on the front lines of climate change building factories now in south carolina with gm et cetera et cetera so jim's just going to walk you through a few things and we're going to talk about some climate change stuff [Music] and they've just gone crazy [Music] hey everyone so i'm jim uh i used to run a hedge fund and uh i'm now i'm an accidental industrialist um so i want to take you through that journey um and then while i do that uh it'll you know we'll go through the problem that i'd like to

solve just to provide some context so i think um if if we think about a lot of the things that just came up with respect to the economy um it's been about a decade plus since the global financial price uh crisis and in that decade plus we've been in this environment where there's been essentially a full-on boom a lot of money printing and essentially a a very low or negative cost of capital in growth in technology right and and what we've seen now i guess we're we're on the uh the beginning stages of of the aftermath of experiencing that economic enema as was just discussed but um we we have just been through this

period of of over a decade where there's been you know all this money that has gone gone to growth and what has happened during that time simultaneously is the real economy has been starved you haven't seen i doubt many of you have friends that are investing in new steel mills or aluminum mills or nickel mines maybe nickel mines now right but while the real economy has been starved actually interestingly we haven't noticed it so much one because we're just starting to scale into electrification but china's made investments so pretty much all of the incremental steel and aluminum and commodities capacity in

the world over the last decade has come online uh because you know china has led the way and you know as an aside um interestingly about 80 percent of the aluminum and 80 percent of the steel production in china has done with coal so not only has this been um you know not only have they sort of taken over the real stuff and this isn't about uh you know where wherever you are on the on the spectrum of is you know are they just a really tough competitor or is this you know some kind of economic world war three it doesn't matter what matters is is that the incremental stuff in the real world has really the

the way has been led by china and uh and and so when we think about what's now happening in the world as we electrify uh i wanna move on to the next one here um i think one good thing about going after elon is i don't have to really explain this chart we are electrifying and um as we electrify what a lot of people might not fully understand is that while all this real stuff has come online the chinese have actually moved downstream very intelligently and so when we think about a lot of people may have heard of china 2025 but a lot of people probably haven't

heard of china 2035 which is the current mo which is to move downstream into standardization and so actually when we look around the world today four of the top 10 oems are chinese by global battery electric share and so when we think about the single largest private employer in the country the auto industry we think about all these industries um that are mineral intensive the chinese are actually have moved downstream and these are these are very mineral intensive industries so what this slide shows is as we go from a fossil fuel world

to an electrification world which you know we all i think everyone in this room believes is is fake complete um and this actually excludes steel and aluminum uh just in the the content of copper nickel lithium and then what i focus on rare earths and some of these other things there's seven times as much content and so when we think about the the past of the fossil fuel driving geopolitical uh gamesmanship and power in the world the future is about minerals and what i focus on are rare earths and so um we and i'm going to get to to my journey as an accidental uh

industrialism in it but but what you can see here is rare earth's um they're kind of the way to think about it is sort of like a a young cousin of semiconductors uh to to the eevee business so regardless of of how electrification happens regardless of battery chemistry how that energy gets to a motor that motor moves via magnets and so this industry is expected to explode and it's not just it's not just evs it's you know wind turbines drones robots can anyone actually guess where this robot is from this is uh it's actually from short circuit johnny number five but i'm

hoping elon will uh get us a better robot of the future but when we think about all these industries magnetics um it's it's really powerful so um that's where i'm focused and and this is just an example of the commodity needs as we electrify if we take uh those projections of what's going to happen in electrification just in my space so this is ndpr this is the the stuff that we make the input into magnetics um you can see there's a huge deficit uh that is looming and here's moving on look at my space here's the challenge so outside of us this entire supply chain is essentially domiciled in china and it doesn't even have to be nefarious but what happens when

the largest manufacturers in the world are all competing for what i showed you on that prior slide uh a shortage of supply and we've seen lots of headlines whether it's the semiconductor issue um or you know just today there was a headline that rivien is fighting with the supplier over seat costs you know all these things where we're seeing the shortages in the supply chain that are that are flowing through um if there's an allocation of materials and the materials are controlled by china or another geopolitical rival which downstream businesses do we think are going to get those materials and this is actually now an existential

issue for all of us um so back to my story um so this is mountain pass this is the mine chamoth mentioned that um we bought this at a bankruptcy in my fund so uh going back about five years ago this site went bankrupt uh it was a public company it sort of it rose and then it fell and nobody believed that we could compete against china and in fact i had to we we showed up i showed up in the delaware courthouse steps um i mean it was literally like out of a movie there were other creditors pushing to send this thing into bankruptcy and you know you look at this thing you're like wait this is the

one of the most valuable rarest materials mines in the world and um and this is the future this is a material for electrification and no one wants it not only does no one want it but people think that actually we can't even produce here economically because the chinese have taken over the industry and so we actually kicked in a couple million dollars just to keep it in care maintenance just to keep the eight employees on site going so that this thing could actually keep its permit through the bankruptcy because otherwise they were just going to raise it to the ground so we we uh went through that journey and uh we ended up buying it and so

these assets this is about 2 billion of replacement cost not to mention the fact that um you know this is one of the marquee sites in the world and and um you know it's in a stable jurisdiction all these assets up over here to the left these are what make it environmentally friendly so we don't put anything back into the water supply we have dry tailings which essentially means that um for sure we're the cleanest rare operation in the world if you go onto youtube you can kind of see how historically some of that mining and processing is done but no one wanted it um and everyone thought that that this

couldn't be done but we we bought it out of bankruptcy we we took on it was sort of a a distressed turnaround uh uh and startup at the same time we had we had no accounting software um we literally had eight people in a mine and i show up i'm a hedge fund manager um and uh you know people thought i was pretty insane um and probably if i knew what i was getting into like i said it was an accident no but i couldn't believe that no one else wanted to do this and i frankly i felt as an american somebody had to do this and you know there i was on the courthouse steps and so i went for it um

and you know fast forward to today and we're now you know we're now public we went as jamal mentioned we went public a couple years ago or six and a half billion dollar market cap um it's been you know obviously a massive thank you um so this has been a massive home run for for myself and my investors but more importantly i i um and i don't belittle that ultimately we're capitalists here we want to do a great job for our for our clients and ourselves um but i hope that we can kind of contextualize this for what needs to happen throughout our economy because i do think that um as painful as the adjustment may be that we're now in this

period that we're about to be in um with with what you know some of the the as the capital comes out of the growth space there is going to be a big beautiful bull market in real stuff and it is just beginning and i can i'll give some statistics with the besties i don't want to ruin my besties time so i'm going to finish up real quick but there there's a lot of stuff that needs to get built and this supply chain stuff is existential and so what we're doing at mp you can see our stage one we're doing we just reported our quarter a couple weeks ago we're now from a site four years ago that i had to beg on the courthouse steps just to keep it alive

we're now doing approximately 450 million of run rate ebitda today um so you know this and then uh we announced the deal we announced the deal with gm where after actually have already broken ground in a magnetic facility in fort worth texas and this is a scale deal it's not exclusive we expect to bring in other oems where we'll be making magnets so we'll be shipping material that will be environmentally produced from mountain pass california over to our site in fort worth and make magnetics and our goal is to build a western magnetics champion um and so i guess with all that i would say

um hopefully this kind of thing can inspire you we need the the good news is there needs to be a lot more stuff like this so maybe i'll share some stats on you know some of the other space because i don't want to make this just about rare earth but when we think about all the materials that we need for this electrification boom uh and the supply chain that needs to be built this is like this is the era of it's as if it's you know the 19s and ford is just out i mean there is an entire supply chain and it's not just evs it's wind turbines it's drones it's robots and it needs to be a bunch of real stuff that we all create and so um i don't think some percentage of us

don't need to necessarily debate whether crypto is going to go up or down you know now is a time to pivot i think because this is something that we need to do um to to get uh competitive again so i guess with that i'll i'll flip the mic and uh feel the fire from the besties thank you [Applause] tesla in their quarterly earnings said something to the effect of um you know we're going to consider becoming a mining company as well right and then i think elon said something on the earnings call which i thought was really interesting he's like i encourage every entrepreneur out there

to get into lithium please you know become a lithium miner right so maybe if you can just quantify for us and i you showed the the the gap for your for ndpr but broadly speaking lithium and all the other things that we need to actually electrify and get to a reasonable place in climate change how behind the curve are we really so it's a great question and the data is tough because a lot of it is reliant on battery chemistry and so we don't know exactly how much nickel it'll be how much you know but we do know certainly lithium nickel copper all of these things it's multiples we need here's actually maybe this is a great stat

uh some some good source that i utilize estimated that we probably need on the order of 40 to 50 copper and nickel projects over the next couple decades so call it roughly 200 billion dollars of capex to satisfy the demand for electrification that we have over the next couple decades and what's so interesting you mentioned and obviously i assume elon sees this is if you look at the multiples you know just think about it from a strict investor point of view from a financial arbitrage standpoint look at the multiples of where auto auto oems trade right or you know certainly tesla and then look at

what's happening in the mining industry today so so actually the nickel industry is dominated by essentially glencorn valley those two businesses and i'm not you know i'm not pitching stocks but as an investor you know we'll see what the next penalty those two businesses right now at today's uh uh commodities prices are essentially going to free cash flow themselves out in three years time to buy and they're buying back stock right and so this is how how stark the arbitrage is that in the real economy mining and materials companies steel companies are trading at double-digit free cash flow yields they're buying

back stock they have no leverage in their businesses and then downstream everyone's reliant on them and upstream these guys they don't want to spend to build out new capacity because the cost of capital is too high so what's going to happen is i think you're going to see maybe an aol time warner moment and i don't mean it the negative way but i think you could see a tesla or someone like that buy upstream into these industries because ultimately downstream wow they all realize that the real stuff is in shortage and you can't have the enterprise value downstream because it's like musical chairs how much of your night when you're sleeping do you think there's an x percent chance i'm gonna

have some huge environmental catastrophe like part of i think why a lot of folks you know folks like this who could probably go into that business don't is in the back of their mind they think man this is like this is a lot of gnarly stuff if something goes wrong how do you manage that risk and how and how big is that risk if we try to do this in america so the single most important thing we do at mp is safety and we actually on our last service call said you know last two years we've had two years without a lost time injury and we gave everybody every single employee

in the company a cash bonus to celebrate that milestone which is really critical the reality is this isn't software right it's real stuff all we can do is our best i just think i think frankly as as a human being as an american i would rather have mines being done in america in the state of california over elsewhere in the world where i certainly know that i assure you that nickel mining in russia is not as environmentally friendly as it is in canada well i think most people may or may not know this but for example all of the you know cobalt that goes into a lot of these evs a lot of it comes from drc

and if you go and see the state of governance in drc women's rights and drc child rights in drc they're not existent and so it is a very very complicated um dirty supply chain that feeds the beast and even though you may think you're doing the right thing by you know driving this plug-in hybrid or you know your toyota prius if you trace that stuff back it's a really complicated place i think we've all gotten a big education um on supply chain over the last two years with kovid and the value may be of redundancy and what happens if you give a dictator a little too much power the germans are learning a hard lesson about what happens when you shut down

nuclear reactors and decide hey let's buy our let's buy our energy from putin yeah uh well that's a great point you raised about the germans because i think it's a fair analogy to say that germany is to not gas as we are to china supply chain and so we see we see this coming right we see and again this is this speaks to geopolitical leverage yes this is a national security it's a national security issue is it not it's a national security is it is it it's it's a democracy it's a it's a democracy issue is it a war issue is it something that gets to the point where we would have to go to war if for example we didn't get

the natural resources and critical elements we need not that you said that it could not it would happen but could it happen where it's so important that all these other countries can electrify and and well how about this i'll make a prediction i'll bet that in the next five years we will see a major household name oem fail or need a bailout due to not you know prices went up on them but lack of access to a material some kind of critical material like you're talking a gm a ford assembly somebody probably not gm i mean think about it do we if you think about it do we need to even predict this we went

to a number of wars in the middle east over oil so if this is the new oil and that is the analogy it's clearly gonna cause you know uh conflicts and the question is you know are we gonna build a strategic reserve of these materials do we have a strategic reserve we talked about the food supply problem and freeburg educated us on hey we've got like 30 days of food this country has 90 days of food do we need to have a strategic reserve of these rare earth minerals in the united states jason i just don't think there'll be enough because when you think about this is we're talking about a multi trillions of dollars a year to electrify across so great the

demand is so great we're talking about build up supply we can't build up supply or if we can't we need to put the capital in and right now and that's why you know again we'll let the the investor panel maybe they can can bleed into this but that's why i think the whole spaces are screaming by because if you look across all these companies the cost of capital is just so high and so one of two things has to happen or both which is prices just have to go vertical or someone starts taking them out or we're just not going to have the stuff to electrify i i understand that there's now been demonstrated significantly more lithium tell me if

i'm off on this in the oceans than there is in the crust and there may be systems for extracting lithium from the oceans that are electrochemical in nature that would allow us to kind of access that resource and will you know obviously if you can get a system that can scale you can get it all out very quickly so i mean have you looked into these systems you have a sense for the opportunity let me step back and then step down to that so investment styles are cyclical just like industries you know i believe in cycles right price the cure for high prices is high prices there's no question in my mind whether it's that or there will be someone or

frankly maybe someone in this audience will have some breakthrough right and so we will solve this problem but the challenge is is that i don't even think that we've ignited the proper focus and resources to actually solve this problem and so there may be that may be an example of a solution but that'll take five to ten years but in the meantime there's you know there's a lot of resources that need to be applied to adam jonas who is the auto analyst at morgan stanley calls this the mother of all cat-back cycles i think right and i think his estimate was like you know something like three trillion dollars of capex needs to get spent over

the next decade even to have a fighting chance on all of this stuff and so if you're looking at new areas so take your ndpr mp materials hat off but if you're in the same position you were back then now not not really you don't need to go to the courthouse steps but where would you be looking you know would you look at lithium would you look at nickel would you look at trying to do what you know china's doing and create better and simpler and cheaper chemistries for batteries like where would you spend your time right now if you weren't doing mp so i i think you actually said it perfectly well in the lead in which is just

anything that is real stuff and so yeah all of it lithium copper nickel steel aluminum all these areas that have been starved the cost of capital is just so high across the board that if you can come up with solutions to deliver the shortages and again i'm not saying the next three months maybe we could have a brutal recession for six months but we see the long-term five ten-year trend i think anywhere you look in this space you're looking in the right direction it's a it's it's a wind at your back as opposed to and again i'm not you know taking a view but to come up with a new cryptocurrency right now it's it's it's a huge wind at your back relative to

can you could you get your mind operational in today's political environment do you think like if you had to start from scratch or if you found a new thing in nevada or you know wherever it is that's a great question and that's the challenges that it takes to to get any of these things it takes a decade right it takes if you have all the capital in place all the human capital all that just the you know going through that process to build it the materials cost and so uh could i do it i think the world needs it and i think that what we do environmentally is so unique that i think we could get it done but this is a big challenge and i think

frankly it's a it's a you know you guys were talking in the last session about um we need to come together this is a big time area where we need to come together there should be a grand bargain right there should be the environmentalists should say okay i accept that we need this stuff i accept that we don't want it to be only made in russia and china and they should loosen up on some of the permitting stuff and i think the people who are just like you know drill drill mind mind mind don't care need to accept that we need to have really tough standards um and i think we should have some kind of grand bargain and it could be you know tax policy focused on it but

there needs to be some kind of coming together in our country to recognize that we need this stuff i mean let's be intellectually honest people are hypocrites the the people in the eu people the united states they want the energy they want to cheat they're complaining about the expense of you know even a modest increase in energy across 10 20 which they could withstand they will complain about it and they they will not allow fracking in their country but they're more than willing to let russia frack for it they don't want the cobalt coming out of the ground in california they're more than willing to let 15 year olds dig it out of the ground without a

mess eight-year-olds as horrific as it is and there is intellectually dishonest it's hypocrisy and i think we have to own the fact that we want to live in large houses and we want to blow the air conditioner on some ridiculous setting america's homes are three times bigger than other homes so to build on this two two very quick stories there's a massive deposit of lithium in nevada which would be enough to basically feed tesla and another oem okay so this would get probably somewhere between one and one and a half million cars pure uh electric on the road by 2030 and they're they were completely permitted by the blm the bureau of land management

and there was a lawsuit that was filed and it's still wrangling its way through the federal court system and what it is is a claim that the there is an upper wood grouse that could be endangered um through this mining they have yet to find an actual upper wood grouse in the area right but nothing can happen theoretically and so the problem is that we've now delayed two years you know it could get resolved this year but it could be another two or three years which means the lithium isn't actually available until 20. global warming continues to happen that's one story second story is that just yesterday the california

uh the city of costa mesa rejected a bid to build an electrolysis facility to create a hundred million liters of clean water every single day um just a desal plant the d cell plant because they didn't want it because they're going to lose some jellyfish or something no they just didn't want it they thought ah it's unsightly i don't want this in costa mesa meanwhile you know pretty it's a coaster it's a mesa so you know uh and and so to your point when the rubber meets the road these unfortunate decisions get made and there's no way to you know sort of come together these people want to take 30-minute showers i

mean that's the hypocrisy of it if americans really want to talk about conservation first of all 30 minutes there's nothing wrong with a 30-minute shower listen i wasn't calling you out specifically but since you uncloaked yourself it's it's gratuitous in fact it's completely christian and it's such a great point and my my entire argument is that we're gonna we will answer this question as a country either now or later and the point about four of the ten largest auto oems in the world are now chinese companies and so this is now a competitive issue and so we can we can

keep kicking the can or we'll face the crisis are you are you well lost by the government are you beloved by like can you kind of like be line and just cut through the nonsense because of nevada government looks like you well i think i i think that it's fair to say that the the local officials are very happy with what we've done with what we've achieved in south carolina right uh the in fort worth texas the the magnetic facility you know the we we have some partnerships with dod the president announced that the gm facility uh the gm things in texas in texas and texas um so i think that there is frankly support from both sides of the aisle for what we're doing uh you know there were

executive orders on the rare earth magnetic industry specifically both in the trump administration and in the biden administration so i think what we're doing is hopefully nonpartisan um and and frankly i think all this should be and that that's you know the point about the grand bargain but even you raised a great point about just all this stuff it's you know there's so much pushback and we need to we need to figure out a way to get past that because this stuff has to has to get made i think it's incredible i mean i'm a huge fan disclaimer i was also an investor wow i am not an investment company but

uh we do appreciate you giving us the education and and we do need to be independent from communist countries uh and really have the supply chain situation dialed in so we appreciate the hard work for america and for freedom and i'm a huge fan of you guys so thank you thank you we're all done we'll let your winners ride rain man david sacks [Music] we need to get back [Music] i'm going on [Music]